Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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Uncertainty in the Middle East lingers on and markets are beginning to realise what an actual risk-off environment looks like. Since the start of the week, the US dollar has been the uncontested safe haven, pushing higher against all other currencies and lifting the DXY back above 99 for the first time since January. The Pound Sterling now sits at yearly lows against the dollar and is currently flirting with $1.33, while the Euro is struggling to remain above $1.16. The Japanese yen meanwhile is approaching 158 and even the Swiss Franc has depreciated significantly against the greenback over the last few days. Traders are desperately looking for a safe harbour and so far, markets have unanimously agreed that the Greenback is the place to be.
To many, the bigger surprise has been the underperformance of precious metals. Gold plummeted on Tuesday, falling to $5,000 per ounce before undergoing a minor bounce which saw the precious metal close the day 4.4% in the red. Silver performed even worse, falling 8% to a daily close of $82 per ounce. A similar story for platinum and palladium, which fell 9% and 7% respectively. While metals are performing better this morning, the renewed strength in the dollar has dampened upwards momentum.
Stock markets around the world are reacting very poorly to ongoing events, but none more so than those in the Far East. The Japanese Nikkei 225 lost 3% yesterday and has fallen a further 4% so far today. In South Korea meanwhile, the KOSPI Composite hit circuit breakers earlier in the day, with the index dipping as low as 12% at one point. The selloff is one of the largest in decades and follows a 7% decline in the index on Tuesday. Major European indices lost around 3% yesterday, while their US counterparts managed to contain the damage at 1% losses at most.
In what is increasingly strange behaviour, Bitcoin has not reacted to current events in the slightest. Cryptocurrency markets remain completely unfazed by developments in Iran, turning instead to potential progress on the market structure bill in the US, which has been dragged through a quagmire of modifications over the last few weeks. Yesterday, President Trump finally lost patience with the banking representatives who have stalled the bill, urging Congress to pass the legislation “ASAP”.
One of the major sticking points of the conflict remains the total standstill of oil and gas shipments through the Strait of Hormuz, which has increased the price of both resources substantially. The Brent Crude index is now north of $82 per barrel, while WTI is up to $75, but such increases pale in comparison to the massive surge in LNG prices over the last few days. Dutch TTF natural gas futures spiked from €32/MWh last Friday to €54/MWh last night, while other regional benchmarks have also seen massive surges. Europe and Asia are already feeling the pinch of increased energy prices and if the strait remains closed for much longer, both regions will have to entertain alternative procurement measures. Shipments in and out of the Persian Gulf have halted in part because insurance companies have cancelled war risk coverage for vessels travelling through it. President Trump has responded to this directly by promising that the US will provide risk insurance and protection for all shipping in the region, although shipments have not resumed as of yet.
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